The report, called Hotel Distribution Costs, was commissioned by
the European Technology and Travel Services Association (ETTSA),
and carried out by economics consultancy Infrata. ETTSA is a
membership organisation which represents OTAs and GDS
providers.

It suggests the main reason for hoteliers to push direct sales "is
to reduce transparency for consumers" and that direct distribution
is no cheaper for hotels than indirect.

Infrata found a 0.03 per cent difference in "net profit
contribution" between direct and indirect channels, based on an
average daily room rate in Europe of €112.

The study looked not just at headline costs such as agents and
OTAs' commission, but also at the costs of customer acquisition,
customer services and technology development

ETTSA secretary general Christoph Klenner said: "The widely held
belief that direct distribution is cheaper than indirect
distribution has been debunked once and for all in this study. It
seems the major incentive for hoteliers to push direct sales is to
reduce transparency and comparability for consumers, reducing
competition between hotels. Customers must be given the choice of
which channels best suits their needs."

The authors of the study reviewed more than 25 academic and
industry reports on the sector and interviewed hotels, technology
providers, industry bodies and agents.

They report says: "The average net contribution of all the direct
distribution channels is €4.59 per booking greater than the average
of all the indirect channels. Were a hotel to shift their entire
inventory (away from OTA channels) there would be a statistically
insignificant change in the overall net contribution. However, a
hotel is likely to face a significant drop in occupancy which would
require a material increase in spend in the areas of customer
acquisition, online marketing, technology development and customer
services. When selling indirectly, these costs are usually borne by
the intermediary from commission proceeds."

The report calls this "the billboard effect" and says: "Hotels
benefit significantly from being displayed on OTA websites. Up to
35 per cent of hotel bookings can be attributed to guests finding
out about a particular hotel, then booking directly with that
hotel."

Without this billboard effect, the study suggests hotels would
need to increase their spending on search engine optimisation (SEO)
"by €7 to €10 per booking".

The authors say: "OTAs outspend hotel chains on non-branded hotel
search by 'orders of magnitude'. This means higher visibility in
the web search which translates into bookings."

Responding to the report, Avvio CEO Frank Reeves said: "While
it's important to understand that the sponsors of this report,
ETTSA, are directed by representatives of OTAs and online
distributors, it would be wrong to make light of the need for
hoteliers to fully understand - and tightly control - the relative
costs of direct versus OTA bookings. It's worth emphasising also
that the hotel example used in the report is representative of the
major chains rather than independents. There are important
differences such as franchise fees, CRS fees, loyalty etc. that are
worth considering."

"I disagree with the premise that direct bookings are the same - or
even worse - than OTA bookings and I believe most hoteliers feel
the same. Here are some important principles regarding the direct
channel, SEM and direct bookers that have not been adequately
considered, in my opinion, in this report:
• OTAs increase SEM fees for hotels: OTAs still
aggressively compete on hotel brand-name search terms on paid
search channels like Google and Bing and the costs to hotels of PPC
traffic is significantly higher as a result of this practice. I've
yet to hear an explanation for how this is OTA's adding any value
to hotels. In fact the opposite is the case, particularly when you
consider that a hotel's competitors will also be marketed to the
customer who clicks on the OTA ad. The report fails to recognise
that SEM, and specifically the cost of PPC traffic, is inflated by
this OTA practice and, in the scenario whereby a hotel does not use
OTAs, brand name PPC would be much lower than it is today.
• Reverse billboard effect: While I believe there is an argument
for the billboard effect - but a declining one with the growth of
meta-search IMO - the report fails to recognise the 'reverse
billboard effect' whereby customers will quite often leave a hotel
website in order to book on the OTA. Companies like Avvio and
TripTease exist to help hotels tackle this very problem.
Considering that hoteliers now pay PPC fees for up to 40% of their
traffic, the 'reverse billboard effect' means that the true cost of
OTA is actually higher than just the commission on an OTA booking.
This does not appear to have been considered in the report.
• Loyalty is more than just discounts: Hoteliers should pursue
guest experience that surprise and delight guests and this is most
important when it comes to loyal guests. While the report
focuses on the loyalty discount programs of the bigger chains and
reflects loyalty as an extra cost line item for direct bookings, it
would be incorrect to assume that customers are only loyal because
of a reduced rate.
• The cost of a direct booking is directly related to booking
conversion: not only does a great booking engine grow the volume of
direct bookings but, the stronger ROI that goes with improved
look-to-book rates means a reduction in the SEM acquisition costs
for direct bookings. Our goal at Avvio is to be the best booking
conversion platform on the planet for hotels. The more we continue
to move the conversion rate needle in the right direction, the
better the value of a direct booking over an OTA booking.
• Finally, OTA bookers are likely to be OTA-loyal rather than
Hotel-loyal. When OTAs focus on adding value to hotels, rather than
redirecting traffic from hotel brand name search terms for example,
it is clear that there is still a real value-add delivered to
hotels. A strong dependence on the OTA channel by hotels however is
to ceed control and be at the whim of next year's contractual
terms.

It remains essential in my view that OTAs should be used
strategically while at the same time hoteliers focus on growing
direct bookings and minimising associated costs. I believe most
hoteliers feel the same," concluded Reeves.

The 2018 Boutique and Lifestyle Hotel Summit, which
takes place on May 21 and 22 in London, includes a session called:
Demand management, dynamic pricing and direct booking, what's next
for OTAs? Click here to find out more and buy
tickets.